Financial Reporting Annual Notes

You are asked only for selected financial statement analysis of your company. In your report, discuss trends, financial position, ratios, etc. only if relevant for evaluating the quality of reported financial information or specifically required by the project. For example, it may be helpful to discuss inventory turnover when assessing inventory valuation risk.

To assess a company's financial statements, think specifically about: (1) the types of underlying transactions and events that affect the company, (2) how well the financial accounting rules (i.e., GAAP) reflect those transactions and events, (3) the aggressiveness or conservatism of management's accounting choices, and (4) how the annual report helps you assess the company's risks, financial position, and profitability.

Additional valuable information about the Company is in the MD&A report. This information may help you understand the company's business policies and practices.

For each item below, provide an easy to read and understandable presentation of the facts for your company.

2. COST OF GOODS SOLD AND INVENTORY VALUATION:
? Importance and role of inventory for this company
? The inventory valuation method(s)
? Major inventory valuation risks for this industry (e.g., obsolescence, declining demand, fluctuating costs, technological change, or other)
? Potential for abuse of inventory in financial reporting (explain how if it is likely)

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Introduction
Monro Muffler Brake, Inc operates its business in automotive repair industry. This paper discusses the financial statement analysis of the company in order to value receivable and inventory. This paper discusses receivable valuation in terms of types of revenue transaction in the company, potential for abuse of account receivable and importance of account receivable in the industry. Similarly, inventory valuation is discussed in terms of importance of inventory for the company, inventory valuation risk and potential for abuse of inventory in financial reporting.
Revenue Recognition and Receivables valuation
Types of Revenue Transactions:
For Monro, revenue or sales are recognized or recorded upon the completion of automotive tire services and undercar services provided to customers. Sales mix of the company in the year 2009, 2010 and 2011 include brakes, steering, exhaust, tires and maintenance. Revenue that is earned from the sale of tire road hazard warrant agreements is recognized on the basis of a straight-line basis over the contract period or the method in which costs are not incurred ratably. Company has two types of revenue transactions such as cash and credit. Generally, Monro does not extend credit to its customers and it is the reason that it has low receivables (Annual Report 2012).
Importance and Role of Account Receivable to the Company:
Account receivable has a significant portion in the total business transactions of a company that improves the cash flow in the company. Role of receivables is crucial in the credit oriented economy. For Monro, account receivable can be important in order to enhance the sale of the company. Role of account receivable can be important in the expansion strategy of the company as by providing credit facility to its customers; it can enhance its market share in new markets. At the same time, company can also borrow money on its account receivable. It is because as the trade receivable of the company decreases in the year 2011 ($1821) from ...